CEZ Likely to Bid for Enel Stake in Slovenske Elektrarne

Dow Jones subscribers were first to learn that Czech power utility CEZ AS was expressing a serious intention of bidding for Slovak peer Slovenske Elektrarne AS, potentially one of Europe’s largest energy sector transactions in 2014. Rome-based Enel Spa is considering selling its 66% stake in SE. Analysts estimate the Slovak business could be worth around EUR2 billion.

The story as it appeared on Dow Jones:
Aug. 22, 2014 8:22 AM EDT: CEZ Likely to Bid for Enel Stake in Slovenske Elektrarne

By Sean Carney

PRAGUE–Czech-based electricity company CEZ AS is serious about bidding for its Slovak peer Slovenske Elektrarne AS, a senior company official said, setting the stage for what could be one of Europe’s largest energy sector transactions this year.

Rome-based Enel Spa is looking to sell its 66% stake in SE, which it bought in 2006 for EUR840 million ($1.11 billion), as well as its Romanian units, to reduce its debt. Analysts estimate the Slovak business could be worth around EUR2 billion.

Meanwhile CEZ has held off on making major acquisitions in recent years. But after canceling its own nuclear power plant tender this April, it has spare capital for deal making.

“Everybody now on both sides, both Enel and [CEZ], are doing their homework, preparing for the official process [to sell SE]“, Pavel Cyrani, a member of CEZ’s board of directors and head of the company’s strategy division said in an interview Thursday.

Mr. Cyrani said CEZ and Enel will launch official sales talks as soon as Enel kicks off the formal negotiation process.

Enel officials say they want the deal finalized this year but declined to give a deadline for bids or to say whether CEZ was the sole bidder or not in the competition.

Enel has engaged BNP Paribas and Deutsche Bank to advise on the transaction, and the sales process should accelerate in September, when potential bidders start making offers, a person familiar with the matter in Rome said.

Mr. Cyrani said CEZ is looking at various financing models for a potential bid, but declined to elaborate. He said it was too early to discuss a value for SE, but said CEZ and SE share geographic, political and cultural proximity that would make the tie-up much easier.

“The benefits from our point of view are relatively clear,” Mr. Cyrani said.

Both the Czech and Slovak companies operate several nuclear reactors and need to replace aging atomic power units with new generators. Both also have a broad portfolio of renewable generators and very similar legacy fossil-fuel plants built more than 25 years ago.

One stumbling block to any deal could be issues with Enel’s plan to build two new reactors at the Mochovce nuclear power plant in southwest Slovakia, a project that has been bedeviled by delays and cost overruns, partly due to increased European Union safety concerns about nuclear power following the Fukushima disaster in 2011.

Mr. Cyrani said that estimates of what is still needed to complete Mochovce vary by as much as EUR1 billion, adding uncertainty to SE’s overall value. Enel itself estimates the project will cost EUR3.8 billion.

The deadline for startup of the new reactors at Mochovce “keeps getting extended and the budget continually keeps rising. We are carefully discussing this risk and we are thinking about how to resolve it,” Mr. Cyrani said.

The possibility of further overruns at Mochovce, allied to SE’s existing plans to invest EUR2.5 billion in its business over the medium-term, means the company has been looking for sources of debt funding.

In June SE secured a EUR870 million loan from Russia’s Sberbank. The company should conclude a loan agreement with a Western European bank of roughly the same size in September, according to second person familiar with the matter.

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